Fintech firms in a spot after RBI restricts access to credit data

With the Reserve Bank of India (RBI) restricting fintech firms’ access to consumer credit information, the business model of start-ups working on lending and consumer insights is being questioned.

Industry experts say this step could negatively affect the business of credit information bureaus that have seen rising demand from fintechs in recent years. The RBI last week asked banks and non-banking financial companies (NBFCs) to stop providing unregulated entities access to consumer information held by credit bureaus.

Currently, the Credit Information Companies (Regulation) Act, 2005, (CICRA) defines rules relating to use and access to consumer data from credit bureaus such as TransUnion CIBIL, Equifax, Experian, and CRIF High Mark.

Banks partner fintech marketplaces and institutional agents and provide them authorisation to access credit bureaus’ data.

Sources said some fintech firms were planning ask the RBI to withdraw the order.

“While the RBI should have strict vigilance over the use of customer data procured from credit information companies (CICs), disallowing the fintech firms to access this data is not healthy for this growing segment,” said Dipti Lavya Swain, privacy and credit information law expert and partner at HSA Advocates.

With access to customer information, many fintech firms create consumer insights with the help of artificial intelligence and data analytics and offer them as a service to banks. Such insights help banks in their lending decisions.

“With many banks not so heavily invested in new-age digital technologies, or at least yet, they usually seek partnerships with fintech firms for their technology and know-how and get insights into consumer borrowing and spending patterns. Such partnerships help banks to detect frauds by doing risk-based profiling of customers,” Swain added.

Companies such as Karza Technologies, Onfido, Spocto, and TransUnion are into the data analytics business and work with banks and non-bank lenders.

Apart from fintech firms providing technologies to providers of financial services, even those fintechs that are into lending as an intermediary are likely to be affected.

“Online lenders that are working as market places for lenders and borrowers are likely to be adversely affected,” said the founder of a Bengaluru-based digital lender. However, digital lenders with an NBFC licence will not be affected by this move because they can access such data.